USAID backs MFIs with $10m guarantee
USAID kicked off a seven-year program to guarantee over US$10 million in microfinance loans to the agricultural sector yesterday, as part of a new US effort to offer greater economic support to the country.
The US development agency has signed a multi-bank loan portfolio guarantee with five local microfinance institutions (MFIs), which will cover 50 percent of their losses for loans that qualify for the program, Saskia Funston, a USAID development outreach and communications official, told The Myanmar Times.
The program was announced on September 14 along with a statement from US President Barack Obama that the US would lift almost all remaining sanctions against Myanmar following a visit from State Counselor Daw Aung San Suu Kyi.
The five MFIs participating in the guarantee program are ASA Microfinance, LOLC Myanmar Micro-Finance Company, Myanmar Development Partners Company, Pact Global Microfinance Fund, and Proximity Designs. These five firms were those that expressed an interest in joining and USAID did not turn down any interested MFIs.
As part of the program the participating MFIs agreed to provide new lending to micro, small and medium sized enterprises in the agricultural sector without relying on the groupguarantee model – where groups of people serve as collective guarantors for loans.
Enterprise owners will be able to grow their businesses and hire more workers, while the MFIs will gain the experience of lending to individuals, said Ms Funston.
MFIs are still free to set their own interest rates within existing regulation – roughly 2pc per month – but the guarantee will help them provide larger loans, Ms Funston said. The typical microfinance loan is around $200, while the program will guarantee loans from $400 all the way up to $5000. USAID expects the program to benefit over 5000 enterprises, and that the majority of these will be owned by women, she added.
The latter expectation is based on the fact that women are the largest users of microfinance services in Myanmar.
“The intent is to open a new path for businesses to get access to formal, responsible finance,” Ms Funston said.
USAID charges MFIs an origination fee of 0.175pc for every guaranteed loan issued, and a utilisation fee of 0.35pc of the average outstanding principle amount of loans guaranteed, Ms Funston said. The origination fees are likely to amount to $3600 per MFI, she added.
A farmer works on a paddy field in Nay Pyi Taw.